We are often asked by suppliers, what determines which products get ranged in which stores and how can we influence the decision?
In reality, the decision on which products get ranged, or stocked, in which stores is typically based on a combination of factors that vary depending on the retailer’s business strategy, customer demographics, and market dynamics. For some retailers, all decisions around assortment are made at a Head Office level and communicated down to stores. For others, the store management have some discretion to carry certain ranges based on their knowledge of the local consumers.
The former approach risks missing sales opportunities because the algorithm doesn’t cater for ‘local tastes’ necessarily. The latter approach caters more closely to the needs of the consumer, but potentially builds inefficiency into the supply chain because of the need to customize the orders by store.
That said, let’s explore some of the more common factors that determine product assortment or ranging decisions in stores.
1. Customer Demand: Retailers should and do analyze customer demand data, such as historical sales data, historical promotional activities, market research, and customer feedback, to identify popular products and customer preferences. This information helps retailers determine which products are likely to sell well in a particular store based on the local customer base, shopping patterns, and preferences.
2. Store Size and Format: The size and format of a store can also impact product ranging decisions. Smaller stores may have limited shelf space, and retailers need to carefully select which products to stock based on available space. Additionally, different store formats, such as convenience stores, supermarkets, or specialty stores, may have different product assortment strategies based on their target customers and business model. Retailers typically ‘grade’ stores based on these first two factors, and build assortments for each grade.
3. Supplier Relationships: Retailers may have agreements or contracts with specific suppliers or brands, which can influence the product assortment in stores. Supplier relationships, including factors such as pricing, availability, and promotional support, can impact which products are ranged in a store. It is well known that some chains charge suppliers listing fees to get their products ranged. In some categories, suppliers who are willing to provide in store execution, or high impact Point of Sale collateral, can achieve more favourable outcomes in terms of shelf space.
4. Seasonal and Regional Factors: Seasonal and regional factors can also impact product ranging decisions. For example, seasonal products like holiday decorations or summer clothing may be stocked during specific times of the year. Regional preferences, cultural differences, and local market dynamics can also influence the assortment of products in different stores. In the US, seasonality can often determine very different assortments on for example, the west coast versus the east coast.
5. Profitability and Margins: Retailers consider the profitability and margins of products when determining product assortment in stores. Higher-margin products or products with higher sales volumes may be prioritized, as they contribute to the overall profitability of the store. Suppliers will sometimes offer incentives such as markdown money to promote certain ranges or to secure additional off shelf locations to drive incremental volume.
6. Competitive Analysis: Retailers may also consider competitive factors when making ranging decisions. They may analyze the product assortment of their competitors in the local market and make decisions on which products to stock in order to differentiate themselves, offer unique products, or meet customer demands that are not fulfilled by competitors.
7. Merchandising Strategy: Retailers may have a specific merchandising strategy, such as promoting private label products, focusing on premium or budget offerings, or emphasizing specific product categories. This strategy can influence the product assortment in stores and drive the overall merchandising approach.
National chains carry huge numbers of products in store, resulting in tens of millions of permutations and combinations. So it makes sense to grade stores and determine certain configurations for uniformity and supply chain efficiency. That can make it challenging for a supplier to argue why certain products should be ranged in stores that are not graded accordingly. Nevertheless, in our experience a supplier that presents a case backed by solid empirical data, that demonstrates a logical clustering of stores, can successfully get assortments modified. After all, a store that has never carried a particular line because of its grading, will never know its potential sales, and that could be an opportunity cost to the business. One approach from a supplier’s point of view, is to offer to trial the range in a handful of stores, and commit to take the stock back if it does not achieve a pre-determined, mutually agreed benchmark rate of sale.
In summary, the product assortment in stores is determined by a combination of factors, including customer demand, store size and format, supplier relationships, seasonal and regional factors, profitability, competitive analysis, and merchandising strategy. Retailers carefully consider these factors to optimize their product ranging decisions and meet the needs of their customers while aligning with their overall business strategy. However, there is usually scope for suppliers to successfully negotiate increased ranging using empirical data backed hypotheses.